Outline of Transactions for the Securities Lending to Provide Japanese Government Securities as Collateral for the U.S. Dollar Funds-Supplying Operations
As of October 12, 2018
Bank of Japan
Financial Markets Department
This document is an outline of the securities lending to provide Japanese government securities (JGSs) as collateral for the U.S. dollar (USD) funds-supplying operations, which the Bank of Japan operates based on the "Principal Terms and Conditions for the Sale of Japanese Government Securities with Repurchase Agreements to Provide the Counterparties with Japanese Government Securities to Be Pledged as Collateral for the U.S. Dollar Funds-Supplying Operations." Please note that the following information may change in the future.
A. Location of sales
The Bank's Head Office (Operations Department).
B. Decisions on use of the facility
In principle, the Bank shall decide on the conduct of auctions when it is requested to implement an offer by one or more counterparties who have applied to the USD funds-supplying operations.
C. Securities to be sold
Among the JGSs (excluding floating-rate bonds and inflation-indexed bonds) held by the Bank, issues to be sold shall be selected pursuant to the Bank's relevant rules.
D. Date of auction, etc.
- Auction date
In principle, the auction shall be conducted on the same day as the auction date of the USD funds-supplying operations, of which the counterparties pledge the JGSs provided by the Bank as collateral (hereinafter "designated USD funds-supplying operations").
- Sale date
In principle, the sale date shall be the business day following the auction date of the designated USD funds-supplying operations.
- Repurchase date
In principle, the repurchase date shall be the business day following the maturity date of the designated USD funds-supplying operations.
E. Method for auctions
A multiple-price competitive auction under the conventional method shall be conducted for each sale in which counterparties1 bid "selling yields" (yields for the period during which securities are held by counterparties).
- Notes 1: Only those who have requested the auction.
F. Upper limit on selling yields
The interest rate shall be set as stated in section 4. (4) of the "Principal Terms and Conditions of Complementary Deposit Facility."
A. Notification of auction guidelines (offer)
When operating the securities lending to provide JGSs as collateral for the USD funds-supplying operations, the Bank selects auction participants from eligible counterparties and notifies them of the following matters through the Bank of Japan Financial Network System (BOJ-NET).
- (a) Total amount of offer2
- (b) Issues to be sold
- (c) Upper limit on the amount of sales per issue to be sold
- (d) Upper limit on the amount of bids (per issue and total amount)3
- (e) Upper limit on selling yields
- (f) Sale date
- (g) Repurchase date
- (h) Bid-submission cut-off date and time
- (i) Other matters deemed necessary by the Bank
- Notes 2: Shall be set equal to or above the total amount of each auction participant's upper limit on the amount of bids.
- Notes 3: Shall be set based on the value of collateral for the designated USD funds-supplying operations.
B. Submission of bids
Auction participants notify the Bank of their desired selling yield and desired amount of purchase per issue, and the total amount through the BOJ-NET by the bid-submission cut-off date and time notified in subsection A.
C. Acceptance of bids (notification of respective results to auction participants)
The Bank, after receiving bids as described in subsection B, accepts bids by starting with the lowest desired selling yield and continuing up until the total amount of bids accepted reaches the amount offered per issue. However, the Bank reserves the right to reject all or some of bids which a counterparty submits when deemed appropriate, such as when counterparties bid for a certain issue which they have consecutively been purchasing from the Bank for a certain period.
When accepting bids, the Bank, through the BOJ-NET, notifies auction participants who submitted bids as described in subsection B of the issues it will sell, selling yield and amount of sale per issue. Here and hereinafter, those who receive such notifications will be referred to as purchasers.
IV. Sale of JGSs and Settlement on the Repurchase Date
A. Sale of JGSs
On the sale date notified in subsection III. A, the Bank delivers JGSs to the purchaser simultaneously with the purchaser's payment of the selling price to the Bank. The purchaser pledges the JGSs to the Bank as collateral for the designated USD funds-supplying operations.
B. Settlement on the repurchase date
On the repurchase date notified in subsection III. A, the purchaser delivers JGSs to the Bank simultaneously with the Bank's payment of the repurchasing price to the purchaser.
A. Selling price
The selling price shall be calculated as follows:
B. Margin ratios
Margin ratios are decided in accordance with the types of JGSs and their residual maturities. (Please see 2. of "Margin Ratios for the Purchase/Sale of Japanese Government Securities with Repurchase Agreements" for specific numbers.)
C. Repurchasing price
The repurchasing price shall be calculated as follows:
VI. Collateral and Margin Calls
A. Net exposure
Net exposure is the absolute value of the sum of individual loans4.
- Notes 4: Individual loans are calculated as follows.
Individual loans = market value of securities the Bank has sold to purchasers - proceeds the Bank would pay when repurchasing securities from purchasers* × margin ratio
- : Calculated by assuming the day of calculating the net exposure is the repurchase date.
B. Margin calls by the Bank
When a net exposure accrues to the Bank, the Bank shall accept eligible collateral from the purchasers/sellers.
C. Collateral for securities lending to provide JGSs as collateral for the USD funds-supplying operations
Collateral accepted under the basic rules concerning collateral as agreed between the Bank and purchasers/sellers.